5 Best Volume Indicators in TradingView For Effective Trading (2024)

5 Best Volume Indicators in TradingView: Volume is the total amount of shares/lots traded in a specific security in any specific time interval. Traders need to understand the key information on volumes traded to analyse the price action of securities for good risk-reward ratio trade setups.

Here, we shall explore the 5 Best Volume Indicators in the TradingView, which help traders analyse the securities with volume and price data.

Value of Volume

• High volume signifies the interest of buyers and sellers present in the security. When the security is in an uptrend with an increase in volume, it signals that the security is likely to continue its uptrend.
• Similarly, increasing volumes in a downtrend signals that security will continue its strong downtrend further.
• Low volume indicates a lack of interest. When the security is in an uptrend with a decreasing volume, it signifies that although the momentum is strong, it has low volume so the market can reverse back quickly. And vice versa if the market falls with low volume.

Best Volume Indicators in TradingView

1. On Balance Volume(OBV)

The on-balance volume(OBV) is a momentum indicator that uses volume flow to predict price movement. It is used to assess the cumulative buying and selling pressure which adds volumes on up days and subtracts volumes on down days.

It is one of the first indicators to measure positive and negative volume flow. This indicator was developed by Joe Granville.

Interpretation

If the security closes higher than the previous close, then all of the day’s volume is considered as up volume.

When the security closes lower than the previous close, then the day’s volume is considered as down volume.

Here, rather than value, the direction of OBV has more importance.

• When the price of a security is making higher highs and higher lows, as volume supports the OBV indicator follows the price direction, where an uptrend continues.
• When the price of a security is making lower lows and lower highs, as volume supports the OBV indicator follows the price direction, where a downtrend continues.
• The divergence between price and volume indicators will also help to identify the trend.

2. Money Flow Index(MFI)

The money flow index is a volume indicator that measures buying and selling pressure in security with price and volume data. It is similar to the RSI indicator, but RSI considers only price data, whereas MFI includes volume.

The indicator helps in identifying overbought & oversold zones and trend reversals in security.

Interpretation

The money flow index indicator ranges between 0 to 100 in which, when the price of security oscillates above 80, itis considered an overbought zone. Here, a price reversal towards the downside can be expected.

When the price of security oscillates below 20, it is considered an oversold zone. A price reversal towards the upside can be expected.

Another way to trade with a money flow index is by looking for divergence between price and the indicator.

When the price of a security makes a higher high and the indicator makes a lower high, this accounts for a bearish divergence and a downtrend price movement is predicted.

When the price of a security makes a lower low and the indicator makes a higher low, this accounts for a bullish divergence and an uptrend price movement is predicted.

3. Volume-Weighted Moving Average(VWMA)

The volume-weighted moving average is a volume-based indicator that uses the moving average of the price and volume of a security.

A moving average indicates the average price movement of a security in a specified interval of time.

Interpretation

The VWMA indicator helps to identify trends, support & resistance and price reversals in consideration of price-supported volumes.

• When the price of a security is above the VWMA indicator it indicates an uptrend and one can enter a long position.
• When the price of a security is below the VWMA indicator, it indicates a downtrend and one can enter a short position.
• When the price retests the VWAP line repeatedly it acts as a line of support or resistance in trending markets to ride the trend for higher profits.

4. Accumulation/Distribution (A/D)

Accumulation distribution is a volume-based indicator that uses the volume and price data of securities to determine the price trend.

Accumulation refers to buying(demand) and distribution refers to selling(supply), in which the indicator line gauges the supply and demand in security to predict the price movement.

Interpretation

The direction of the oscillator is more important than the value at which it oscillates.

• When both price and A/D line are making higher highs in the same direction, it indicates the uptrend will continue.
• When both price and A/D line are making lower lows in the same direction, it indicates the downtrend will continue.
• In range-bound markets, if the A/D line starts to increase, an accumulation range in the security may break out in the upward direction. If the A/D line starts to decrease, the distribution range in the security may break out in a downward direction.

5. Price Volume Trend(PVT) Indicator

The price volume trend is a volume-based indicator that uses the price and volume data in a security to determine the direction and strength of the price.

The trend strengthens as volume supports the price which can be seen in this indicator. It is similar to the on-balance volume(OBV) indicator as it measures the cumulative volume of a security.

Interpretation

• When the price of a security and price volume trend indicator increases, it confirms the continuation of upward momentum.
• When the price of security and price volume trend indicator decreases, it confirms the continuation of downward momentum.
• A bearish divergence suggesting downward price movement can be seen when the price makes a higher high and the indicator makes a lower low.
• A bullish divergence suggesting upward price movement can be seen when the price makes a lower low and the indicator makes a higher high.

In Closing

Having understood the best volume indicators. It is important to consider volumes in building trading strategies. The inbuilt volume indicators in trading view help traders to analyse price action with volume analysis.

As part of technical analysis, it is advised to consider volume analysis or volume-based indicators in conjunction with other technical tools for better views and a good risk-reward with proper risk management.

Written By Deepak M

By utilising the stock screener, stock heatmap, portfolio backtesting, and stock compare tool on the Trade Brains portal, investors gain access to comprehensive tools that enable them to identify the best stocks, also get updated with stock market news, and make well-informed investment.